[Federal Register Volume 76, Number 236 (Thursday, December 8, 2011)]
[Notices]
[Pages 76783-76785]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-31483]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65875; File No. SR-CBOE-2011-112]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Relating to FLEX Transaction Fees
December 2, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on November 23, 2011, the Chicago Board Options Exchange,
Incorporated (``CBOE'' or the ``Exchange'') filed with the Securities
and Exchange Commission (``Commission'') the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by CBOE. The Exchange has designated this proposal as one establishing
or changing a due, fee, or other charge imposed by CBOE under Section
19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) thereunder.\4\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(ii).
\4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is proposing to amend its Fees Schedule as it relates
to Flexible Exchange Options (``FLEX Options'').\5\ The text of the
proposed rule change is available on the Exchange's Web site (http://www.cboe.org/legal), at the Exchange's Office of the Secretary, and at
the Commission.
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\5\ FLEX Options provide investors with the ability to customize
basic option features including size, expiration date, exercise
style, and certain exercise prices. FLEX Options can be FLEX Index
Options or FLEX Equity Options. In addition, other products are
permitted to be traded pursuant to the FLEX trading procedures. For
example, credit options are eligible for trading as FLEX Options
pursuant to the FLEX rules in Chapters XXIVA and XXIVB. See CBOE
Rules 24A.1(e) and (f), 24A.4(b)(1) and (c)(1), 24B.1(f) and (g),
24B.4(b)(1) and (c)(1), and 28.17. The rules governing the trading
of FLEX Options on the FLEX Request for Quote (``RFQ'') System
platform (which consists of open outcry based trading) are generally
contained in Chapter XXIVA. The rules governing the trading of FLEX
Options on the FLEX Hybrid Trading System platform (which combines
both open outcry and electronic based trading) are generally
contained in Chapter XXIVB. Currently, all FLEX Options are traded
on the FLEX Hybrid Trading System platform.
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, CBOE included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. CBOE has prepared summaries, set forth in sections A, B,
and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this proposed rule change is to revise the CBOE Fees
Schedule as it relates to FLEX Options. In particular, the Exchange is
proposing to amend the fees schedule to provide that FLEX transactions
for the account of non-Trading Permit Holder broker-dealers (which use
the ``C'' order origin code) are subject to the same transaction fee
rates that are applicable to public customers (which also use the ``C''
order origin code).\6\ This change will be effective immediately.
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\6\ The FLEX transaction fees for public customers are currently
as follows: $0.00 per contract for equity options; $0.44 per
contract for SPX options where the premium is greater than or equal
to $1; $0.35 per contract for SPX options where the premium is less
than $1; $0.40 per contract for OEX, XEO, S&P500 Dividend Index and
Volatility Index options (except OEX and XEO Weeklys); $0.30 per
contract for OEX and XEO Weeklys; $0.00 for QQQQ options; $0.18 per
contract for all other index, exchange-traded fund (``ETF''),
exchange-traded note (``ETN'') and HOLDRS options; and $0.85 per
contract for credit default options and credit default basket
options. In addition, a ``CFLEX Surcharge Fee'' of $0.10 per
contract applies to all orders (all origin codes) executed
electronically on the FLEX Hybrid Trading System. The CFLEX
Surcharge Fee is charged up to the first 2,500 contracts per trade.
See CBOE Fees Schedule Section 1 and Footnotes 1 and 17.
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Currently, the FLEX trading procedures and principles contained in
Rule 24B.5 provide for certain allocation priorities to public
customers and non-Trading Permit Holder broker-dealers.\7\ To
accomplish this, both public customer orders and non-Trading Permit
Holder broker-dealer orders in FLEX Options are currently identified
through using the order origin code ``C''. However, use of the same
code may result in billing discrepancies because the public customer
fee rates currently differ from broker-dealer fee rates.\8\ For
[[Page 76784]]
ease of administration, the Exchange is therefore proposing that the
same FLEX Option transactions fees that apply to transactions for the
account of public customers should apply to transactions for the
account on non-Trading Permit Holder broker-dealers. The Exchange also
believes that applying the same fee for FLEX Option transactions on
behalf of the account of public customer orders and non-Trading Permit
Holder broker-dealers is a reasonable and equitable allocation of fees
in that the same fees are applicable to all Trading Permit Holders
representing public customer and non-Trading Permit Holder broker-
dealer orders. The Exchange also generally believes that the level of
activity associated with FLEX Options trading overall,\9\ and with FLEX
Options trading on behalf of non-Trading Permit Holder broker-dealer
activity in particular, is deminimis and it is therefore
administratively convenient to assess transaction fees for non-Trading
Permit Holder broker-dealers in this manner.\10\
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\7\ Under the FLEX electronic request for quotes (``RFQ'')
process, an incoming RFQ order is eligible to trade with FLEX RFQ
responses (referred to as ``FLEX Quotes'') and FLEX Orders at a
single clearing price that leaves bids and offers which cannot trade
with each other (referred to as a ``BBO clearing price'') In
determining priority, the FLEX system gives priority to FLEX Quotes
and FLEX Orders whose price is better than the BBO clearing price,
then to FLEX Quotes and FLEX Orders at the BBO clearing price.
Generally, allocation among multiple FLEX Quotes and FLEX Orders at
the BBO clearing price are first to FLEX Quotes subject to a FLEX
Appointed Market-Maker participant entitlement, if applicable;
second to FLEX Orders resting in the FLEX electronic book; third to
FLEX Quotes for the account of public customers and non-Trading
Permit Holder broker-dealers, with multiple interest ranked based on
time priority, and finally all other FLEX Quotes, with multiple
interest ranked based on time priority. See Rule 24B.5(a)(1)(C); see
also Rule 24B.5(a)(1)(C) and (D) for various on the allocation
algorithm when the RFQ market is locked or crossed or when the
Trading Permit Holder that initiated the RFQ has indicated an
intention to cross.
\8\ The Exchange notes that, to the extent there may be any
billing discrepancy with respect to FLEX Options transactions for
the account of a non-Trading Permit Holder broker-dealers, such
discrepancy would result in an under collection by the Exchange for
such transactions. In that regard, the FLEX transaction fees for
broker-dealers are currently as follows: $0.25, $0.45 and $0.20 per
contract for equity options respectively for manual, electronic and
QQQ transactions; $0.40 per contract for OEX, XEO, SPX, S&P 500
Dividend Index and Volatility Index options; $0.25 per contract for
other indexes, ETFs, ETNs, and HOLDRS for manual transactions; $0.45
per contract for other indexes, ETFs, ETNs, and HOLDRS options for
electronic transactions; $0.20 per contract for QQQ; $0.25 per
contract for credit default options and credit default basket
options for manual transactions; and $0.45 per contract for credit
default options and credit default basket options for electronic
transactions. In addition, certain ``Surcharge Fees'' apply to all
non-public customer transactions (i.e., CBOE and non-Trading Permit
Holder market-maker, Clearing Trading Permit Holder and broker-
dealer) including to Voluntary Professionals and Professionals.
These surcharges include an index license fee of $0.10 per contract
for OEX, XEO, SPX, S&P500 Dividend Index, DJX and Volatility Index
options (except GVZ), and $0.15 per contract for MNX, NDX and RUT
options; and a product research and development fee of $0.10 per
contract for GVZ options. As noted above, a ``CFLEX Surcharge Fee''
of $0.10 per contract also applies to all orders (all origin codes)
executed electronically on the FLEX Hybrid Trading System. The CFLEX
Surcharge Fee is charged up to the first 2,500 contracts per trade.
See CBOE Fees Schedule Section 1 and Footnotes 1, 14 and 17.
\9\ For example, during September 2011, all FLEX Options trading
activity accounted for approximately 0.08% of the Exchange's average
daily volume.
\10\ The Exchange is evaluating whether to introduce a separate
order origin code for FLEX Orders that are entered for the account
of non-Trading Permit Holder broker-dealers. If the Exchange would
introduce such a code in the future, we anticipate that the Exchange
may considering revising the fee schedule to assess transaction fees
rates for non-Trading Permit Holders broker-dealers that differ from
the transaction fee rates applicable to public customers. Any such
change to the fees schedule would be addressed through a separate
rule change filing.
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2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Securities Exchange Act of 1934 (the ``Act''),\11\ in general, and
furthers the objectives of Section 6(b)(4) of the Act,\12\ in
particular, in that it is designed to provide for the equitable
allocation of reasonable dues, fees, and other charges among Trading
Permit Holders. The proposed change is reasonable because the
transaction fee rates for the account of non-Trading Permit Holder
broker-dealers are the same as the rates that apply to public
customers. The proposed change is equitable and not unfairly
discriminatory because the same fees are applicable to all Trading
Permit Holders representing public customers and non-Trading Permit
Holder broker-dealers. Further, the Exchange generally believes that
level of activity associated with FLEX Options trading overall,\13\ and
with FLEX Options trading on behalf of non-Trading Permit Holder
broker-dealer activity in particular, is deminimis and it is therefore
administratively convenient to assess transaction fees for non-Trading
Permit Holder broker-dealers in this manner.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(4).
\13\ See note 9, supra.
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B. Self-Regulatory Organization's Statement on Burden on Competition
CBOE does not believe that the proposed rule change will impose any
burden on competition that is not necessary or appropriate in
furtherance of purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The proposed rule change is designated by the Exchange as
establishing or changing a due, fee, or other charge, thereby
qualifying for effectiveness on filing pursuant to Section 19(b)(3)(A)
of the Act \14\ and subparagraph (f)(2) of Rule 19b-4 \15\ thereunder.
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CBOE-2011-112 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2011-112. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro/shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such filing will also be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File No. SR-CBOE-2011-112 and should be
submitted on or before December 29, 2011.
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For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-31483 Filed 12-7-11; 8:45 am]
BILLING CODE 8011-01-P